1:45PM Williams-Sonoma report lower earnings on 9% rise in revenue.
Williams-Sonoma, Inc. (WSM: chart), a retailer of specialty home products, reported Q1 earnings of 20 cents or $23.1 million, a decrease of 11.7% from 22 cents a share or $26.2 million a year earlier. Net revenues for the quarter increased 10.2% to $794.3 million up from $720.7 million a year ago. Analysts had been looking for earnings of 17 cents per share and revenues of $798 million.

Retail net revenues for Q1 increased 9.2% to $433.9 million up from $397.2 million in the year-earlier period. Net Revenues generated in the Pottery Barn, West Elm, Pottery Barn Kids, Williams-Sonoma and Williams-Sonoma Home Brands were the primary contributors to the year-over-year increase. Combined catalog and internet revenues increased 11.4% to $360.4 million, up from $323.5 million last year. Internet revenue alone increased 31% to $201 million up from $153.5 million a year ago.

Gross margin of net revenues for Q1 was 38.5%. The 80 point decrease was primarily driven by the 2005 infrastructure investments that were not fully implemented until the second-half of 2005, which includes retail occupancy in the company’s emerging store brands and incremental costs associated with daily store replenishment and increased distribution capacity, and also the negative impact of increased markdowns in the Hold Everything brand, and higher energy costs.

Selling, general and administrative expenses for Q1 were $270.7 million or 34.1% of the net revenues. The 60 point decrease was primarily driven by decreases in advertising and employee-related costs as a percentage of the net revenues.

Guidance for the second quarter includes a net revenue projection in the range of $842 million to $856 million down from previous guidance of $858 million to $872 million. Retail net revenues are projected to be in the range of $466 million to $474 million down from previous guidance of $473 million to $481 million. Same-store sales growth is expected to be in the range of 1.5% to 3.5% down from previous guidance of 3% to 5%. Gross margin of net revenues is expected to be in the range of 37.8% to 38% down from previous expectations of 38.2% to 38.4%. SG&A expenses of net revenues are expected to be in the range of 33.2% to 33.4% up from previous guidance of 32.9% to 33.1%. Diluted earnings per share are expected to be in the range of 20 cents to 22 cents down from previous expectations of 22 cents to 24 cents.

Guidance for the fiscal year includes a net revenue projection in the range of $3.87 billion to $3.92 billion down from previous guidance of $3.89 billion to $3.96 billion. Retain net revenues expected to be in the range of $2.21 billion to $2.24 billion down from the previous outlook of $2.22 billion to $2.26 billion. Same-store sales growth is projected to be in the range of 2% to 4% down from previous guidance of 3% to 5%. Combined catalog and internet sales are expected to be in the range of $1.66 billion to $1.68 billion down from previous projections of $1.67 billion to $1.70 billion.

In May 2005, the company’s board of directors approved a stock repurchase program to acquire 2 million additional shares of common stock. The company succeeded in completing the stock repurchases this quarter by acquiring the final 20,000 shares at average price of $38.84 per share and an approximate total cost of $777,000. In March 2006 the company’s board of directors authorized an acquisition of an additional 2 million shares of common stock with no expiration date. No shares of the 2006 repurchasing program were acquired during Q1 of 2006.